European shares end down, dogged by oil, Nokia

European shares fell yesterday as concern over oil prices rekindled security concerns and a slide in cellphone giant Nokia overshadowed strength in mining groups.

Crude oil dominated investors' radar screens as the Opec cartel meets in Amsterdam today to discuss a Saudi proposal to hike output to cool high oil prices that could damage economic recovery if sustained.

The FTSE Eurotop 300 index ended off 0.14 per cent at 974.5 points, with declining issues just outpacing advancers, and volume about average at €2.5 billion.

The index closed the week a fraction higher after hitting a fresh 2004 low on Monday amid concerns over crude oil.

Stocks moved off their lows late session after Saudi Arabia proposed a bigger-than-expected oil output increase. The oil producers' cartel is meeting in a bid to tame crude prices that had been above $40 a barrel for 10 days before dipping below that level on Friday after the Saudi proposal.

US refinery bottlenecks, Middle East security worries and heavy speculation on crude futures by investment hedge funds have all helped drive up oil prices.

Fund managers and dealers said markets were also jittery because of worries over a possible attack on the US and uncertainty whether US interest rates will rise next month.

"(Stock) valuations are good, and interest rates and economic growth are reasonable, but only if oil prices stay at lower levels; and then sentiment will come back, and people will buy into the market," said Lex Werkheim of Eureffect asset management in Amsterdam.

The DJ Euro Stoxx 50 index shed 0.4 per cent to 2,697.46 points.

Rolf Elgeti, a strategist at Commerzbank, said equities were expected to rebound from current levels, but he added that markets were likely to remain volatile for another month.

"The prospect of the Fed(eral Reserve) raising (US interest) rates at the June 30 meeting, together with the expected handover of power in Iraq, could remove two of the overriding concerns weighing on markets and mark the beginning of a period of equity market strength," Mr Elgeti said.

Nokia, the world's top cellphone maker, was the leading blue-chip decliner, its shares falling four percent in Helsinki after Goldman Sachs investment bank cut its fair value and earnings forecasts on expectations that growth in the handset market would slow.

Morgan Stanley investment bank cut its rating on the Finnish stock to "underweight" from "equal-weight", and also lowered its price target, saying Nokia's global market share was expected to continue declining to about 28 per cent by 2008.

But basic materials producers were a source of strength. Steelmaking giant Arcelor gained 1.8 per cent to €13.6 on hopes that moves by China to slow its red-hot economy would have only a gradual impact, while miners Anglo American and Rio Tinto, which have also benefited from strong demand from China, rose 1.9 per cent and 2.8 per cent, respectively.

Positive broker notes lifted BT Group and VNU, after Smith Barney raised its price target on the British telecoms heavyweight, while Morgan Stanley forecast a sharp improvement in earnings and cash-flow momentum at the Dutch media group.

BT shares gained 1.3 per cent, while VNU rose 3.5 per cent. Other gainers included confectioner Cadbury Schweppes, which rose 1.1 per cent on the back of its cautiously optimistic tone on its full-year performance.

Britain's Lloyds TSB bank rose after news of solid trading in the first half reassured investors that its dividend was not in danger.

As European markets closed, the Dow Jones industrial average was 0.8 per cent higher at 10,018.3 points, while the technology-laced Nasdaq Composite Index was up 0.86 per cent, at 1,912 points.